US Congress nears financial rules reform milestone

Mon Nov 30, 2009 4:28pm EST

* House committee poised to complete legislative work

* Senior Republican senator weighs in on 'too big to fail'

By Kevin Drawbaugh

WASHINGTON, Nov 30 (Reuters) - The lead committee on financial regulatory reform in the U.S. House of Representatives is expected to approve the last two of eight major regulatory bills on Wednesday, said House aides.

In what would be a milestone for reform advocates, the House Financial Services Committee is expected to pass measures dealing with the systemic risks from the collapse of large, troubled financial firms and to establish the first federal government office to monitor the insurance industry.

The insurance legislation stops short of imposing outright regulation, something that would remain under the control of the states.

The committee, chaired by Democratic Representative Barney Frank, has already approved six other bills that would toughen oversight of credit rating agencies, derivatives, executive pay and hedge funds and improve consumer and investor protections.

The reforms aim to head off the type of credit crisis that nearly froze the world financial system last year.

Approval of the systemic risk and insurance measures could still be derailed. The Congressional Black Caucus on Nov. 19 forced a delay in voting on the systemic risk bill. Caucus officials were not available on Monday to say whether an agreement has been reached to let a vote proceed.

But if a vote is held, approval is likely, with Democrats in firm control of the panel. Afterward, the plan is to package the two bills together with the previous six into a single measure to go to the full House as soon as mid-December.

"This is the final leg of the House financial reform package," said Jaret Seiberg, policy analyst for financial firm Concept Capital.

"This was held up before Thanksgiving because the Congressional Black Caucus wanted to shine the spotlight on high unemployment in the districts of its members. We expect the CBC to let the bill proceed this week to ensure the full package goes to the floor before the Christmas recess."

SENATE MOVING SLOWLY

More than a year since the meltdown of Wall Street giant Lehman Brothers jolted the financial system, progress toward rewriting the rules for banks in the House has not been matched in the Senate, which is moving at a snail's pace.

No action was slated for this week on financial regulation in the Senate Banking Committee, which will be focused on Thursday on a hearing on Federal Reserve Chairman Ben Bernanke's nomination to serve a second four-year term.

Bernanke will testify and financial regulation is expected to be a key topic of his remarks, with the Fed under fire and some lawmakers trying to strip the central bank of its consumer protection and bank supervision responsibilities.

But policy analysts said they expect Senate debate on financial reform will extend well into 2010.

The banking committee's top Republican on Monday urged clear government procedures for dealing with large troubled firms, sometimes described today as "too big to fail."

In his latest comment about one of the most difficult reform issues, Senator Richard Shelby said, "Such a regime will operate similarly to bankruptcy proceedings."

"Whereas ordinary bankruptcy proceedings would likely be too slow to respond to short-term counterparty exposures, a resolution regime must be nimbler."

In a text of a speech he made at Oxford University in Britain, Shelby said the "resolution regime" would need ready access to resources, but taxpayers must be protected.

"Preventative measures, along with a nimble resolution regime and accountability, will help protect financial systems and economies from a repeat of the recent crisis," he said.

Shelby and Senate Banking Committee Chairman Christopher Dodd, a Democrat, differ on key aspects of tightening bank and capital market oversight. Dodd has introduced a comprehensive bill that addresses many of the same issues being debated in the House.

RELATED NEWS

* FACTBOX-Major U.S. financial regulation reform proposals, double-click on [ID:nN23390080]

* FACTBOX-Keys to U.S. House panel's 'too big to fail' bill, double-click on [ID:nN19201171]

* SCENARIOS-U.S. Congress targets Fed for changes, double-click on [ID:nN24323051] (Editing by Leslie Adler) ((kevin.drawbaugh@thomsonreuters.com, +1 202 898 8390, +1 202 488 3459 (fax)))

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